Nasdaq plunged 5.5% after the Democrats' victory in the US midterm elections. This is linked to the risk of increased regulatory pressure on the AI industry and a slowdown in the construction of new data centers.
This is the largest one-day drop in the past 19 months. Shares of semiconductor manufacturers, data center operators, and companies related to the development of artificial intelligence infrastructure were sold off the most.
According to Reuters estimates, S&P 500 companies lost $3 trillion in market capitalization. At the same time, despite the sharp decline, the US stock market remains in positive territory since the start of the year.
On US exchanges, 26.9 billion shares changed hands compared with an average of 17.7 billion over the last 20 sessions.
Why the Democrats' victory frightened AI investors
The market reaction is linked to fears about future US policy toward the artificial intelligence industry.
Among the potential risks for the sector are stricter environmental requirements, additional control over the use of electricity and water, as well as possible restrictions on the implementation of large-scale infrastructure projects.
"The market is moving from valuing the potential of artificial intelligence to valuing its cost," said Ted Parkhill, founder of Incline Investment Management, in a comment to Reuters.
How the US elections affect the stock market and what changed in 2026
The stock market reacts not so much to the very fact of a particular party's victory as to uncertainty about future economic policy.
The 2022 midterm elections also brought political changes: Republicans gained control of the House of Representatives, while Democrats kept the Senate.
On November 9, the day after the vote, US stocks declined. During trading, the S&P 500 lost 1.55%, and the Nasdaq — 1.97%. Investors were assessing the election results but at the same time waiting for new data on inflation and the prospects for Fed rate hikes.
Even earlier, in the November 2018 midterm elections, Democrats gained control of the House of Representatives, while Republicans kept a majority in the Senate.
The market was under pressure from fears about a trade war between the US and China, Fed rate hikes, and a possible economic slowdown. By the end of 2018 overall, the S&P 500 lost about 4.4%.
However, if in 2018 and 2022 the main sources of uncertainty were trade policy, inflation, interest rates, and the general state of the economy.
Then this year regulation of the artificial intelligence industry was added to the list. Investors put money into companies that were supposed to benefit most from the development of AI. Now they are forced to reassess the prospects of these investments because of the risk of political restrictions.
Real restrictions on data center construction, access to electricity, and the implementation of infrastructure projects, if they occur, will force investors to revise valuations of the companies that have become the main beneficiaries of the AI boom.
More about this boom: Can AI destroy humanity or is the market being protected from overheating? The dismissal of Anthropic researcher Jacob Coxon has again raised this discussion. Here are the main points